How a Credit (FICO) Score Works & how to Raise it.

One of the first things you need to do before undergoing credit report repairing is to take time to understand how credit scoring works. This article will explain what a credit score is, so that you will know what to look for when you start to fix bad items that show up on your credit report.

The credit score that lenders use is called the FICO score. Your FICO score helps lenders to determine whether you qualify for a loan and what interest rate you'll pay. It is a number based on the information in your credit file that shows how likely you are to pay a loan back on time.

The Highs and Lows of a Credit Score

Credit scores range from 300 on the low end to a high of 850. The higher your score, the better. This means you will get lower interest rates on everything from home and auto loans to credit cards.

Credit Repair: Why it Pays to Fix Bad Credit

Bad Credit costs. Roughly, a score of 720 is necessary to qualify for a prime loan(mortgage) at conventional rates. It is used to be around 620 before the foreclosure crisis hit. Consumers with lower scores are charged a higher interest rate, or denied for a home loan altogether.

Falling below the 720 cut-off point can impose significant costs on mortgage borrowers.

For example, a borrower paying a subprime rate on a 30 year $150,000 mortgage would pay $317,517 in interest vs the $193,450 of a borrower who had a better rate of 6.56% for the same 30 year $150,000 loan. Over the life of the loan, that's a difference of $124,067 in interest payments.

As this example illustrates, it literally pays to clean up your credit.

Credit Repair Tips: Factors that Determine Your FICO Score

Several factors go into determining your FICO store. Following are four of the most important(there are several more)

On-TimePayments:How many times you've had late payments. FYI, this is the number one thing you can do to increase your credit score - make your payment on time.

Length of Credit History:The longer you have open credit accounts, the higher your score(if you've paid on time and if the accounts are of a certain kind)

Types fo Credit Lines:As alluded to above, some types of credit can actually work against you.

Credit Available to You: Having too much credit available to you - even fi you don't use it - can lower your score. Note: It's tidbits like this that most don't know when trying to repair their credit that can have you going about it the wrong way.